NYSE National, Inc. and the Securities Industry and Financial Markets Association renewed their war of words over NYSE National’s temporarily suspended NYSE National Integrated Feed fee change proposal. NYSE insists that its fee structure is fair and reasonable and that analysis performed by experts demonstrates that market forces constrain the amount the exchange can charge for its data feed. SIFMA disputes that competition limits NYSE’s pricing power and points to different expert analysis of the matter. NYSE’s fees were immediately effective earlier in 2020 but the SEC has since temporarily suspended them while NYSE and the public reply to the SEC’s request for more information about the NYSE proposal, which the SEC is now due to either approve or disapprove by October 17, 2020.
SEC says not so fast. NYSE National initially filed its fee change proposal in early February 2020. The proposal would have established access fees, redistribution fees, user fees, three categories of non-display use fees, non-display use declaration late fees, multiple data feed fees, a fee waiver for federal agencies, and a one-month free trial for the NYSE National Integrated Feed. In April 2020, however, the SEC temporarily suspended the rule change under Exchange Act Section 19(b)(3)(C), which provides for such temporary suspension "if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act."
By June 2020, the SEC had decided to request additional information and more public comment on the NYSE proposal. Said the Division of Trading and Markets pursuant to delegated authority: "The Commission believes that there are significant unresolved questions about whether NYSE National has produced sufficient factual support to satisfy its burden to demonstrate that its proposed fees meet the standards set forth in the Act." The June 2020 request for information and comment focused on three main topics, although it also sought more generalized comments:
- Are the Proposed Fees Constrained by Competition?
- Are There Substitutes for the NYSE National Integrated Feed?
- Are the Fees Reasonable, Equitable, and Not Unfairly Discriminatory?
According to NYSE, prevailing law allows it to justify its fees using either a market-based or cost-based approach, the former of which had already demonstrated that competition among exchanges does constrain pricing of data. This was a point NYSE had previously made and which was reflected in the SEC’s June 2020 suspension order. Specifically, NYSE had argued that competition for order flow on the trading side of its platform limits how much it can charge for data on the other side of its platform. NYSE also asserted that firms could choose substitute services at relatively low cost and that some firms already had cancelled NYSE subscriptions.
SIFMA’s latest comment reiterated its view that NYSE’s theory is flawed because data feeds are not fungible such that broker-dealers typically buy more than one feed in order to gather a full picture of the market for purposes of competition and best execution. Also, SIFMA noted that NYSE National has a relatively small overall market share, but the exchange is critical for some stocks and for exchange-traded products. According to SIFMA, that means broker-dealers may feel compelled to subscribe to the NYSE feed, even though NYSE National has a smaller overall market share. As a result, SIFMA concluded that competition for data feeds will not constrain NYSE’s data fees. Moreover, SIFMA said it is critical that the SEC require exchanges to provide data on their costs to maintain data feeds.